Surge in SMEs seeking protection as bad debt and payment delays rise

A weakening economic backdrop is driving a sharp increase in small and medium-sized enterprises (SMEs) seeking protection against customer insolvency and late payments, according to new research from Bibby Financial Services (BFS).

The firm’s latest SME Confidence Tracker highlights growing financial strain across UK businesses, with rising levels of unpaid invoices, mounting bad debt, and increasing evidence of delayed payments throughout supply chains.

According to BFS, SMEs are now owed an average of £66,770 in unpaid invoices, marking a 10% increase year-on-year. At the same time, nearly a third (30%) of businesses have written off an average of £30,000 over the past year due to customer insolvency or default.

These losses are prompting more firms to seek safeguards. In 2025, 60% of BFS’ new business customers opted for Bad Debt Protection (BDP) as part of their funding arrangements, a significant uptick that reflects growing concern over payment risk.

Notably, SMEs are increasingly choosing to protect their entire sales ledger rather than insuring only specific clients, suggesting that financial instability is becoming more widespread across supply chains.

The research also points to worsening payment behaviour. Around 62% of SMEs report that customers are taking longer to pay compared with a year ago, further straining cashflow.

In response, some businesses are being forced to delay their own payments. Nearly one in five firms (19%) say they have held back payments to creditors in order to manage their finances.

“Economic pressures are driving caution among many businesses who are urgently seeking ways to protect against insolvency and protracted default of customers,” he said. “For many, it’s no longer about simply protecting against one or two problematic debtors.”

The findings come as official figures point to a rise in business failures. UK corporate insolvencies reached 1,878 in February 2026, a 7% increase on the previous month, underlining the fragile state of the business environment.

However, BFS warns that bad debt is no longer limited to companies on the brink of collapse. Instead, it is becoming a systemic issue affecting otherwise viable firms.

Ryan described bad debt as a “hidden cost of doing business,” with knock-on effects across supply chains as companies increase prices to offset losses.

The report also raises concerns that some businesses may be intentionally delaying payments to preserve their own financial positions – a trend that could further destabilise supply chains.

“There’s a strong indication that, in certain cases, organisations are adopting deliberate payment delay tactics,” Ryan said. “This is a worrying development that should ring alarm bells for businesses of all sizes, as well as for policymakers seeking to safeguard the resilience of supply chains across the UK economy.”